RPSM04106040 - Technical pages: Taxation: Inheritance tax and unauthorised payment tax charges on alternatively secured pension funds and dependants' alternatively secured pension funds

Death on or after 6 April 2007: Example where tax charges in respect of an unauthorised payment due in relation to remaining alternatively secure pension funds but not inheritance tax

Glenda is a member of a registered pension scheme and has an arrangement under that scheme which provides alternatively secured pension. Glenda has no other pension arrangements in this or any other registered pension scheme that provide alternatively secured pension or any other type of pension benefit.

Glenda dies on 1st June 2007, age 81.

The value of Glenda’s alternatively secured pension fund immediately before death is £200,000.

Glenda leaves no dependants and the remaining alternatively secured pension funds of £200,000 are not paid as a charity lump sum death benefit. (Any remaining alternatively secured pension funds paid as a charity lump sum death benefit would be exempt from inheritance tax.)

Instead, the remaining alternatively secured pension funds are paid out of the scheme immediately as an unauthorised member payment. See the example in RPSM04106031 for details of the tax charges that apply to the unauthorised payment.

After making the payment, but before inheritance tax is due, the scheme administrator sends an account of the ‘net alternatively secured funds’, £60,000, after taking into account the tax charges, at an effective rate of 70%, that apply in respect of the unauthorised member payment made in respect of the remaining alternatively secured pension funds (£200,000 – [£200,000 x 70%] = £60,000) to HMRC Inheritance Tax using forms IHT100 and IHT100g; the deadline for submitting the forms being 12 months after the end of the month in which Glenda died.

The value of Glenda’s chargeable estate for inheritance tax purposes, excluding the remaining alternatively secured pension funds at the date of Glenda’s death, is also £200,000. When the remaining value of the alternatively secured pension funds, £60,000, is added to Glenda’s estate, the total amount of £260,000 remains below the inheritance tax ‘nil-rate band’ of £300,000 for the tax year 2007/2008, so there is no inheritance tax due in respect of Glenda’s estate.

Once HMRC Inheritance Tax is satisfied that there is no tax to pay, HMRC Inheritance Tax issues a clearance letter to the scheme administrator confirming that no inheritance tax is due in respect of the remaining alternatively secured pension funds.